What Is a Business Credit Card and How Does It Work?

A business credit card is a lot like a personal credit card: Both let you borrow money and pay them off on an ongoing basis. But business credit cards typically come with features tailored toward entrepreneurs, like free employee cards and rewards on common business purchases, like office supplies.

Business credit cards offer other benefits as well. They are great tools for separating your business and personal finances, on-time payments can help you build business credit, and unlike other types of business financing, you may be able to qualify for one even if your business is new or small.

» MORE: How to get a business credit card as a new business

What is a business credit card?

A business credit card is a revolving line of credit that lets you spend up to a certain amount, pay off some or all of what you owe, then repeat that process. This can help you make purchases you need, even when your cash flow is uneven.

Technically, you can use consumer cards for business expenses. However, card issuers have products designed for business owners. These cards often come with higher credit limits than personal credit cards and make it easier to spot potential tax deductions, among other features.

» MORE: The biggest differences between personal and business credit cards

Business credit cards are one of the easiest types of business financing to qualify for. Eligibility largely depends on your personal credit history, which can make business credit cards for new businesses and very small companies more accessible than traditional business loans.

How do business credit cards work?

Business credit cards work a lot like personal credit cards do. But for bookkeeping and liability purposes, you should only use a business credit card for your business expenses.

Broadly speaking, here’s how to use a business credit card:

• Charge business expenses to the card.

• Receive a statement that specifies how much you borrowed over the statement period and how much you need to pay back.

• Make at least your minimum payment, but try to pay down your balance in full. If you can’t, you’ll pay interest on the remainder. Annual percentage rates (APRs) on business credit cards typically range from 20% to 30%. 

• Earn rewards, like cash back or airline miles, as a result of your spending. 

Business owners may also have access to business charge cards. Charge cards have no credit limits, but you’ll need to pay them off in full every month or face stiff penalties. They’re best for businesses with robust cash flow that want to maximize rewards.

Benefits of business credit cards

Business credit cards help you build business credit. Business credit card issuers report your payment history to business credit bureaus. Making early or on-time payments can help build your credit history and strengthen your business credit score.

You can finance purchases as needed. Your business may not always have enough cash in the bank to stock up on inventory or make large purchases while keeping up with day-to-day expenses. Using a credit card can help spread out big-ticket items over time — especially if it’s a business credit card with a 0% APR intro period — or help you keep buying what you need during slow seasons.

You can get rewarded for your spending. For instance, business travel cards offer perks like airline miles, airport lounge access and hotel points. And using a cash back business credit card means you’ll get a percentage of what you spent — either across the board or in certain categories — typically as a cash deposit or credit at the end of each statement period.

Drawbacks of business credit cards

They’re not covered by the Card Act. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Card Act) created new consumer protections for credit card users, like limiting credit card fees and sudden changes to interest rates. But the rule doesn’t extend to business credit cards — which means interest rates can change with little warning and you may encounter fees that you’re not used to on personal credit cards.

You'll likely have to provide a personal guarantee. A personal guarantee promises the card issuer that if your business can’t pay back your balance, you — the individual — will. As a result, late payments may impact not only your business credit, but your personal credit, too. There are a few business credit cards that don’t require a personal guarantee, though.

They're more expensive than other forms of financing. If you need to finance large expenses that you probably can’t pay back in one statement period, consider applying for a business loan or business line of credit instead. Those products are harder to qualify for than business credit cards, but they usually come with lower interest rates.

» MORE: What happens if you can’t pay your business credit card?

Is a business credit card right for you?

Business credit cards can be useful tools for companies of all sizes. You may be able to qualify for a business credit card whether you’re a solopreneur with a side gig or running a small business with multiple employees.